It’s Official: Medicare’s Finances Shadowed by Uncertainty

If you do a quick read of the Medicare Trustees Report, it would seem that Medicare’s finances have dramatically improved since last year. The 2010 report shows that Medicare has a $30.8 trillion shortfall (net present value terms of excess costs over revenues over the 75-year time horizon). Last year it was $38 trillion. Big improvement, right? Not so fast.

Over the past six years, Congresses have twice passed—and two Presidents have signed—major legislation affecting Medicare. President Bush signed legislation creating a new drug benefit that provided an important modernization for the program yet also significantly worsened Medicare’s finances. President Obama signed Obamacare into law, which improved Medicare’s finances only if one assumes that the difficult programmatic changes Obamacare requires will take effect.

As Medicare Chief Actuary Rick Foster clearly indicates, however, that those assumptions are neither reasonable nor realistic. What we are left with then is a report containing projections the Actuary suggests are “poor indicators” of Medicare’s likely finances. In other words, Medicare has the same poor fiscal condition it had last year, but Obamacare has made it harder to project and understand.

Trustees Report Delayed, Devalued by Obamacare

The Trustees Report has come out late in 2010 due to the need to reflect the roughly 165 provisions contained in the Obamacare legislation enacted earlier in the year. According to the report, the enactment of Obamacare “improves the outlook for Medicare substantially.” However, it then goes on to offer so many caveats to that claim as to strip it of all meaning. For example, it quickly follows its rosy assessment of Obamacare’s effects with a discussion of how a new ruse has been constructed for Medicare similar to the now infamous “Sustainable Growth Rate” (SGR), which limits payments to physicians and is habitually overridden with “doc fix” legislation.

Like the SGR, the new Medicare savings ruse involves mechanical downward adjustments to physician payment rates. According to Obamacare, these payment rates are to be adjusted downward to reflect economy-wide productivity gains. However, the historical record is clear, as recounted in the report, that “most categories of health care providers have not been able to improve their productivity to the same extent as the economy at large.”

The implication is that physicians are going to see payment rates steadily ratcheted down to reflect productivity gains they cannot achieve. If allowed to proceed, providers “would eventually be unwilling or unable to treat Medicare beneficiaries.” However, Congress will not allow these steady downward adjustments in payment rates to proceed but will, instead, suspend and eventually repeal them, just as it has done with the SGR.

As the Trustees have tried to warn to the extent their political masters in the Administration will permit, the estimates of savings from Obamacare are not credible. Nowhere is this clearer than in the Statement of Actuarial Opinion provided at the tail end of the report in which the Medicare Chief Actuary states:

Further, while the Patient Protection and Affordable Care Act, as amended, makes important changes to the Medicare program, and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range.

He continues further on:

For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare service providers will not be viable).

and:

The current-law projections are poor indicators of the likely future financial status of Medicare.

A “strong likelihood” that the changes required by Obamacare “will not be viable.” The financial projections “do not represent a reasonable expectation for actual program operations.” The projections included in the report reflecting Obamacare’s reforms “are poor indicators” of Medicare’s finances.

What Do the Trustees Reports Really Mean?

Taken at face value, Medicare’s finances seem to have improved dramatically. But the real story is far different, thanks to Obamacare and all its uncertainty, not to mention its rather shameless assumptions forced onto the actuaries. Obamacare has not fixed Medicare; rather, Medicare is still in need of real and urgent reforms.

JD Foster is the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at The Heritage Foundation. His primary focus is studying long-term changes in tax policy to ensure a strong economy. He also examines changes in Medicare, Medicaid and Social Security so they are both affordable and more effective.

Join The Discussion

[…] First, Geithner is assuming health care reform will bring down entitlement costs. He has to support this fundamental platform of the White House, because that’s what the White House has been saying healthcare reform will do. But this assumption has been challenged by many, including CBO director Doug Elmendorf. In fact, Geithner acknowledges his optimistic take on health care (via Heritage): […]

Social Security was doing just fine until the government saw all that money growing, licked there chops, and presto…it's now in trouble.

It also troubles me as to how people that worked, and combined with their employer contributed to a SS retirement fund, only to have congress come along and tamper with monies that did not belong to them. Since Medicare is attached to SS, then that too have been tampered with. I could go on, but will stop for now!

Why is it that the same people in Congress and the White House are quick to tell us that Social Security is broke, but never seem to tell us who it is that keeps robbing the Social Security fund to pay for all sorts of other government expenditures. Not only do they not tell us who takes the money, they don't tell us how much they are taking or what they are spending it on. This has gone on under Republicans as well as Democrats.

And why isn't the media, the seekers of truth and defenders of the public welfare, ferreting out who took the Social Security money, how much was taken and what it was spent on? Where is the media indignation over this governmental embezzelment of Social Security funds by politicians?

Now, they tell us that it is Americans demanding their "entitlements" that has bankrupt the system.. They talk about Social Security "entitlements" as though it were welfare. Social Security was funded by those who paid in over their working careers, with matching contributions from their employers over the same time period. Social Security benefits are no more an "entitlement" than the benefits payable under an insurance policy you purchased with your own money. It sure as hell isn't charity or welfare.

Bernie Madoff was a boyscout compared to the thieves in Congress and the White House and none of them ever spend a day in jail.

I guarantee you if federal employees and members of Congress had to get by on Social Security pensions, there wouldn't be a shortfall in the funding. There is no talk of any shortfall or underfunding of federal government pension plans, is there?

As expected a budgetary shuffle in the makings . . .diminish what is paid to a doctor for his services or not pay for those services at all because of a litany of insane and moronic rules and regulations. Then blame the greedy doctor because he will not accept Medicare anymore because their reimbursement cannot support him or his office staff . . . or do like they do every year and back door the "doc" fix and the cost of Medicare still goes up . . .smoke and mirrors hiding the true cost of Obamacare and just how broke Medicare really is . . .

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